Charities advised to shore up their reserves as income fails to rise with inflation
Charities are being warned to shore up their finances after new figures show financial growth in the sector remains weak.
Turnover among Scotland’s 25,000 charities rose by just 0.8% last year while those with a turnover of £1m plus did worse, reporting only 0.5% growth at a time when inflation was 2.6%.
Accountancy firm BDO, which specialises in advising not-for-profit organisations, said figures, compiled by the Scottish Council for Voluntary Organisations, should be a warning that the sector has to take measures to guard against further income losses.
Some (charities) may soon experience financial difficulty if revenues reduce further
Martin Gill, partner and head of charities at BDO in Scotland, said Scotland’s charities will find their activities severely restricted if they don’t plan ahead.
Figures analysed by BDO show the 488 charities in Scotland with income between £1-£5m have just 4.5 months of reserves; the 111 with income between £5m-£10m have just 5.3 months of reserves; and the 100 charities with income in excess of £10m have 5.1 months of reserves.
Gill said: “Relatively short cash reserves may not be a problem for all charities - it will depend upon what type of charity it is and the scale of their fixed assets.
“However, some may soon experience financial difficulty if revenues reduce further.
“Deficits appear to have worsened in the last year which can be a sign that a charity is struggling financially but that isn’t always the case.
“Some charities may be using cash reserves accumulated in previous years to fund large scale projects.”
While organisations with income of over £10m (100 in total) reported a surplus of £47m this is almost entirely due to two organisations (Wood Trust and Mactaggart Trust) leaving a surplus of just £3m among the remaining 98 organisations.
“The Scottish charity sector employs 138,000 people with an annual income of £4.9bn so is a major financial force in Scotland,” said Gill.
“However, turnover per employee is £35,543 which does not compare favourably with the private sector. Small companies have a turnover per employee of £73,215 while those employing between 50 -249 people average £137,766 per employee.”
Gill added: “I would encourage all charities to shore up their financial reserves wherever possible.”